Is employee wellbeing the new ‘E’ in ESG?

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The way companies approach employee wellbeing can be a critical test of their culture. Can they come through the current crisis with a stronger and more meaningful workplace culture – or will Covid-19 simply expose this as an empty gesture? Alan Edington, investment manager at Walter Scott, considers some corporate options.

“Our people are our greatest asset.” Never has a corporate cliché been so tested. When revenues dried up, shops closed and demand stalled during the coronavirus crisis, just how much of an asset were those people?

The response from businesses to the economic shock of Covid-19 was a test not only of their financial durability, but also of their values and culture. Recent analysis of the saints and sinners – their corporate policies, practices and benefits – has been forensic.

Some of the leading global computer and software providers were among companies that have been alert to the particular pressures on working parents, offering additional paid leave for parents who had to work without access to their usual childcare arrangements and while home-schooling.

Others also offered additional payments to staff to alleviate any financial burden associated with working from home, recognising that financial pressures on top of other factors might impact mental health. Much closer to the virus frontline, NHS staff were given free access to a range of wellbeing apps until the end of 2020 to support their mental health.1

“There’s no doubt that there are good actors and less good actors that have been exposed by the pandemic,” says Alan Edington, co-head of research at Walter Scott. “It’s that ‘tide goes out’ moment: who has got really robust models, where even through this difficult time they are doing the right thing? As with so-called greenwashing, there is a danger that rhetoric does not equate with action when it comes to employee wellbeing.”

That gap can often be great. A company that promises to look after its employee wellbeing one moment might talk about cost-cutting and automation in the next, says Edington.

The pandemic has proved a real test for the stakeholder capitalism model, and how well companies define the ‘social’ in ESG – in particular, how they treat their staff and protect their physical and mental wellbeing. Recent research suggests investors are also watching carefully, and a significant majority say it is important their money is invested in companies that care about employee wellbeing.2

Under pressure

Such scrutiny comes at a time of heightened anxiety among workers. A survey of 500 employees in the UK conducted at the start of the pandemic3 revealed a fifth had increased their alcohol consumption, a third were eating a less healthy diet and over half were exercising less. The majority reported losing sleep because of worry.

A survey of more than 2,000 employees in Australia, France, Germany, New Zealand, Singapore, the UK and the US, meanwhile, found 44% of those working from home said their mental health had declined.4 These findings came less than 12 months after the World Health Organization recognised burn-out as an official workplace phenomenon.5

What can businesses do to spot the warning signs of employee burn-out and anxiety? And how can management teams – and the investors who place their trust in them – sense a problem with employee wellbeing?

“One of the questions to ask of a company is: is it run just a bit too hot?” says Edington.

“When you see margins marching up year over year and a company’s operating profit per employee rise year over year, you start to ask questions: Is this actually a good thing across stakeholder groups? Are proper procedures being compromised? What does the culture look like?”

One of the best ways to get a sense of the culture is to experience the company at every level, adds Edington. “It’s one of the great reasons to walk a factory floor or go to a company’s store,” he says. “Is what you are hearing from the management team filtering down throughout the organisation?”

Often a good litmus test of a coherent culture is the use of language within the organisation. If you ask a range of employees what the company does and what it stands for, Edington adds you should be able to see signals of a set of shared beliefs. “Everyone will have their own take, but if the response from the CEO, management team and office floor is broadly similar, and delivered with enthusiasm, you can see that it will pervade the culture,” says Edington.

Some say it is the ability of employees to have their ideas heard, which can help create a shared sense of purpose. In some cases, this has involved delegating decision-making to the front line and increasing localisation forced leaders [during the pandemic] to trust their people to know what to do which can prove an asset.

From an investment standpoint Edington adds it is very important to assess the long-term sustainability of individual companies and ask: is the business in question building a workforce that will allow it to be successful in the future?

“It is impossible to separate culture from the financials of a business; keeping employees healthy, happy and productive just makes business sense,” he concludes.

Important information

GE654400     Exp: 04 February 2022

¹ NHS Employers. Update on free mental health apps for NHS staff. 12 March 2021.
² LCP. LCP/YouGov: Employee wellbeing tops list of ESG concerns. 12 February 2020.
³ IES working at home wellbeing survey. 01 April 2020.
⁴ Qualtrics XM. The other COVID-19 crisis: Mental health. 14 April 2020.
⁵ WHO bulletin. Health burn out. 09 September 2019.

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